Logistics Report for End of June

MID-SHIP Group reports that fleet growth rate is at the lowest in 15 years but will still outpace demand this year. Carriers have scrapped an extraordinary number of bulk vessels in the first five months of 2015. According to MID-SHIP Report, as of June 1st, 60 cape size vessels were scrapped while just 41 new vessels were delivered. Panamax scrapped 40 vessels and received 60 new ones and Handysize vessels were about even with 80 scrapped and a similar amount delivered.

The seaborne freight market has suffered from a surplus of ships and a slowdown in demand. MID-SHIP referred to freight levels as a “darkness before the dawn” scenario but expects the dry bulk market to slowly improve in the second half of the year.

“China continues to be the focus of the dry bulk market,” writes MID-SHIP. “While doomsayers have spent great energy in the first half of this year to bemoan the decrease in steam and coking coal import figures and the reduced iron ore CFR China pricing as continued reasoning to question future market resurgence, it is important to note that China continues to import iron ore at record levels and the year-over-year increase in iron ore imports more than offsets the decrease in steam and coking coal numbers.”

Ports

The Cass/Inttra Ocean Freight Indexes indicate U.S. ocean container exports in May increased 3.5 percent on a monthly basis but were 24.8 percent below year ago levels. The rise of the U.S. dollar has dampened export demand and exports to China fell for the second consecutive month.

Imports through U.S. ports were down 9.1 percent in May from April and fell 13 percent year over year. Nearly 43 percent of the decline in May was due to decreased imports from China. Some of the decrease, said Cass, was due in part to the six month ILWU dispute that diverted shipments to Canada, skewing the import index.

“The imports bound for the U.S. are now entering from Canada with aggressively priced intermodal service directly serving Chicago, Memphis and New Orleans,” said the Cass report. “Intermodal container rates on Canadian National for the West Coast to Chicago are reportedly $300 to $400 lower than BNSF and Union Pacific. Year to date, U.S. container imports moving through U.S. ports are down 22.8 percent, despite a 7.1 percent increase in consumer goods imports.”

JOC.com Executive Editor Mark Szakony expects freight volume to increase along with shipping and storage costs during the next 18 months.

“Consumer demand is growing, so freight volume and the economy will keep expanding at a moderate pace,” said Szakony. “You’ll pay more to move that freight and to store it, though. With truck rates rising, the time drivers aren’t behind the wheel will matter more. Shippers who enable drivers to be more productive will find those drivers grabbing that load when capacity tightens. Shippers who make drivers wait to drop off and pick loads, don’t have a bathroom available or treat them poorly are more likely to see their loads delayed at cross-dock. It will be tricky but not catastrophic. Slower economic growth might keep tightening capacity from stinging too badly. Still, rates are going to rise.”

Barge/River Freight

Barge traffic on the U.S. waterways has spiked in the southbound grain market due to high water issues. Northbound traffic is expected to remain flat for another month until the heavy grain seasons begins.

Navigation on river has been dicey due to tropical storm Bill that has been dumping rain across Northern Texas, Arkansas and the Midwest. High water conditions have been noted on the Upper Mississippi and Illinois River. A number of locks will close for maintenance this summer causing significant delays in some regions.

Rail

Total rail traffic for the week ending June 20 was down 2.4 percent from the same period in 2014. Carloads were down 6.1 percent at 273,932 carloads, while intermodal traffic was up 1.6 percent to 276,907 containers and trailers. Rail shipments of coal decreased 13.7 percent and metallic ores and metals were down 8.1 percent.

The Association of American Railroads (AAR) commended the recent approval of rail legislation S. 1626.

“The freight rail industry commends the Commerce Committee’s bipartisan leadership for building unanimous Committee support for a comprehensive package that addresses a number of key areas for our industry, including safety, passenger rail reauthorization and financing, and environmental permitting reform. The AAR looks forward to working with the Committee and the Senate as the bill moves forward,” said AAR President and CEO, Edward R. Hamberger.

“The freight rail industry is very encouraged with provisions to streamline environmental and historic preservation review processes,” added Hamberger. “Railroads have long encountered duplicative and burdensome permitting delays unrelated to environmental quality that have negatively impacted our industry’s ability to put private dollars into rail infrastructure projects and we welcome these commonsense improvements.”

Trucking

Flatbed spot rates declined 0.5 percent for the week June 14-20 compared to the previous week. Rates on a month to month basis were up 0.5 percent in May but declined 7.2 percent year over year. The flatbed load-to-truck ratio decline 23 percent from 26.7 to 20.6 loads per truck, indicating continued strong demand. U.S. average diesel fuel price was $2.859 on June 22 as compared to $2.884 on June 8.

The Highway Trust Fund is set to expire on July 31, 2015. A bipartisan bill entitled Developing a Reliable and Innovative Vision for the Economy (DRIVE) Act (S. 1647) was introduced in the Senate on June 24. DRIVE is a six-year bill that calls for spending $350 billion on surface-transportation infrastructure. The bill includes $13.5 billion for national freight-related building projects. Secretary of Transportation Anthony Foxx praised the bill but said there was much to be done yet. Infrastructure funding, he said, must be raised “to a level that will adequately address maintenance backlogs and needed expansion.”